Businesses Slow To See Effects Of Modest Recovery

Businesses Slow To See Effects Of Modest Recovery: MYOB Monitor

• More business owners reporting revenue decreases
• Fall in expectations for recovery in 12 months
• Slight improvement in ‘pipeline work’ for coming quarter

The effects of the New Zealand economy’s modest growth have been slow in filtering through to most businesses, with less than half expecting a full recovery within 12 months – down 6% on November 2009, according to the latest MYOB Business Monitor.

The MYOB Business Monitor is a nationwide survey of over 1,000 New Zealand business owners, across a range of small and medium businesses, from sole traders to mid-sized companies, and representing the major industry sectors. The MYOB Business Monitor is designed to research key areas of business performance, including profitability, cash flow and pipeline work, as well as business confidence

In the latest Monitor for April 2010, conducted by Colmar Brunton, 49% of Kiwi business owners expect the economy will begin to improve over the next 12 months – a decrease from 55% in the November 2009 MYOB Monitor. Business owners in both Christchurch and Auckland have lost confidence in prospects for a recovery this year – dropping 16% in Christchurch and 12% in Auckland since November. Across the Tasman, business confidence has also fallen by 4% in Australia over the last quarter, according to the April MYOB Business Monitor.

MYOB New Zealand general manager Julian Smith says business owners appear to have adopted a more conservative view of the recovery, as more business owners report a revenue decrease over the past 12 months.

“Since the November 2009 MYOB Business Monitor, when business owners were looking to a more rapid and sustained economic recovery, we’ve seen a slight fall off in confidence,” says Julian Smith.

“This seems to reflect Kiwi business owners’ actual experience of the recovery, as more businesses report decreased revenue and profitability – and more modest gains in pipeline work – at the end of the 2009/10 financial year.”

According to the April MYOB Business Monitor, 35% of Kiwi businesses reported a revenue decrease over the past 12 months, compared to 26% of businesses experiencing increased revenue. Of the businesses reporting a decrease, almost half (47%) have seen revenue fall by between 20 – 39%.

More businesses (35%) have also reported a corresponding fall in profitability, compared to those seeing profitability improvements (28%). However, small businesses (5 – 19 employees) are more likely to have seen profitability improve (41%). The worst performing industry over the period was the Construction and Trades sector, with 49% of business owners reporting a fall in profits, compared with 32% in November.

As in the November survey, despite the fall off in confidence, Christchurch is the best performing region, with 30% of business owners reporting revenue gains, compared to 26% in Auckland, 25% in the rest of New Zealand and only 22% in Wellington.

“In the short term, however, Auckland business owners have more work in the pipeline,” says Julian Smith. “In light of this improvement in the amount of work and sales they have coming up, Aucklanders are also more confident in projecting growth over the coming year.”

Almost half (49%) of the Auckland business owners surveyed in the April MYOB Business Monitor expect business revenue to increase over the coming year – similar to that of the rest of New Zealand at 49%, and greater than Christchurch at 46% and Wellington at 43%.

Auckland businesses also report the most work or sales in the pipeline, with 32% reporting more work than usual coming up over the next 3 months, compared to 30% in Christchurch, 27% across the rest of New Zealand and 21% in Wellington.

By industry sector, the Agriculture, Forestry and Fisheries sector report the greatest improvement in pipeline work since the November Monitor, with 28% showing more work or sales than usual, compared to just 12% in the November survey.

“Perhaps reflecting the peaks and troughs of the sector, and a slower than expected Christmas period, having reported very positively about more work coming up in November (42%), only 22% of Retail and Hospitality businesses are expecting more work in the next quarter,” says Julian Smith.

Mr Smith says although the recovery has not flowed through to businesses as strongly as they expected since the end of last year, many of the concerns businesses held before the recession have re-emerged.

“For the first time in almost a year, fuel prices are again expected to put the most pressure on business owners in 2010,” says Julian Smith.

“Cash flow is still expected to be a problem – particularly for micro businesses – while aspects of the financial markets: the exchange rate, interest rates and access to business finance, have again come to the fore as key business pressures.”

“The picture this latest MYOB Business Monitor is painting is one of more cautious optimism among Kiwi businesses,” says Julian Smith.

“The signs of a recovery – particularly in short term sales and longer term growth – are definitely there. However, many businesses are still working through the effects of the recession and seeing a longer road to recovery than perhaps they were pre-Christmas.”

“To work through this period, where businesses can still be at risk, we’re encouraging our 150,000 Kiwi business customers to keep focusing on the basics and using the tools available to keep close control over every aspect of their operation.”

ENDS

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